Ukraine c.bank to narrow hryvnia rate differences

After the currency surged against the dollar in trade

Ukraine`s central bank will act this week to narrow the gap between the official exchange rate of the hryvnia and interbank market levels after the currency surged against the dollar in trade, a top official said on Tuesday, according to Reuters.

Petro Poroshenko, head of the bank`s policy-making council, did not say to what extent the currency`s official rate of 5.05 to the dollar would be altered. He suggested that current levels of 4.6 on the interbank market were distorted and "speculative".

"The official rate is set on the basis of figures on the interbank market. We have no intention, of course, of maintaining for any length of time the gap between the interbank and official rates," Poroshenko told reporters.

"I think that by the end of this week we will see a narrowing of the figures for the official and interbank rates."

The central bank has kept the official rate at 5.05, within a broader target band of 4.95-5.25, since August 2005.

Until recently, it intervened regularly, buying and selling currency to maintain the hryvnia within a prescribed tighter corridor of 5.0-5.06.

It had climbed in recent weeks to 4.7-4.8 in the absence of intervention. But the surge in the last two days to 4.6 left a gap of about nine percent between the interbank and official rates.

International financial institutions and analysts have called repeatedly for the bank to liberalise the currency, especially as inflation climbed last year, hitting over 30 percent year-on-year last month.

"We will analyse to what extent the situation on the market reflects reality, to what extent it is affected by statements from politicians and specialists which are the basis for rocking the boat at the moment," Poroshenko said.

The bank has also said that it sees a strengthening of the hryvnia as a means to combat inflation.

Poroshenko said he saw no surplus of dollars on the market. Rather, market conditions were caused by a long-term policy of tightly controlling money supply. The bank`s deputy chairman, Oleksander Savchenko, said on Monday that decisions would be taken "in the next few days" to tackle the hryvnia`s "highly volatile rate".

He predicted the currency would see no more than a 3-4 percent fluctuation over the course of the year.

Central Bank Governor Volodymyr Stelmakh said in late April that there would be a "move" on the exchange rate, but the bank`s council rejected broadening the band on the same day.